Estate Planning Kerfuffles: Why DIY Wills and Living Trusts Go Wrong

1 - > Hello and welcome to the Legal Tech Podcast sponsored by Integrated Technology Services, LLC and the law offices of Daniel J. Siegel, LLC, both of Havertown. We are happy to provide this podcast to you as a service and hope that you enjoy it. We welcome your feedback.

By sending an email if you like it or if you don't 2 - > Or have other suggestions to Dan at TechLawyergy.com t-e-c-h-l-a-w-y-e-r-g-y.com. Now to the topics at hand.

This is really a couple of topics, but they come up all the time in my practice. And they're issues that come up regularly for not only me but other lawyers who do estate planning. They deal with the intersection of planning and estates, amending your documents using legal zoom or other types of online creation material, and then using or creating a living trust, each of which can have its own problems and each of which combined can make for, as it was described to me by a client, a kerfuffle.

3 - > So let's get to it and you'll understand why. I don't recommend ever using online tools for drafting estate planning documents. Why it is important to go to a lawyer who is familiar with estate planning documents, and most importantly, having your documents drafted and amended as necessary and executed properly. We go back to the beginning of this story, and a client consulted with me, about her mother, who died in another state that I'm not licensed in.

4 - > I'm licensed in Pennsylvania and can give her recommendations concerning Pennsylvania law. But she wanted to talk, and I, of course, was willing to listen. She came to me because her mother had drafted a will many years ago that set forth her wishes clearly and concisely. She was very happy with that document.

In the interim, she became a grandmother multiple times over and decided that she wanted to leave parts of her estate to her grandchildren directly instead of to her children. 5 - > So what did she do? She asked her son to help her with that, and he did so. But he's not a lawyer.

And as a result, he decided to use a living trust as the mechanism for creating the documents that would, and possibly intentionally leave those items to her grandchildren. Well, he drafted the Living Trust, and did not amend the will. 6 - > Meanwhile, he drafted the living Trust and then had it executed, but not executed properly, which in the state where the woman lived and eventually died, meant that the living trust was of no validity at all, which meant the items in the Living Trust would have to go back to the estate.

Of course, as usual, the heirs did not know this at the time and had already begun distributing money to the grandchildren, even though legally it is not. 7 - > It was not proper, although it was her wishes. What we have is a true kerfuffle and as a result there was a problem. They eventually went to a lawyer in the state where she lived, and he advised them that yes, the will was not amended at all.

And if the will had been either amended or, as we like to do with our office, draft a new will, because you can draft a codicil, which is a an amendment to a will. 8 - > But whenever you draft a codicil, there is always the risk that the two documents, could in some way conflict and cause errors as a result. We don't draft castles in my office. We draft new wills every time.

But for our clients, it's not a big expense because we don't charge for revisions. So the wills are and any amendments are free. 9 - > Instead, she drafted, or her son drafted, a living trust. We also don't draft living trusts because under Pennsylvania law, in most cases they are not valid.

And let me explain. I'm not going to use, my language to explain. I'm going to use language that is, it was issued by the Pennsylvania Department of Revenue on their statement, which they issued and reissued in 2009 and is still valid, called the Taxability of a Revocable Living Trust and Inheritance Tax. 10 - > And what that document said, basically, is that unless the living trust is irrevocable, which means you give the items in the trust to your trustee and cannot take them back, you are liable for the tax.

They say, specifically the trust corpus, the body of the estate is subject to Pennsylvania inheritance tax, where the settlor retained certain rights over the assets until his or her death. 11 - > So if you're writing a living trust in Pennsylvania with the intent of avoiding inheritance tax, you have to give it all away. And that means you don't own whatever it is. And many people draft living trusts, thinking that they are going to be able to avoid inheritance tax.

But you don't avoid inheritance tax unless you give everything to the trust, which means you own no assets. 12 - > And if you have any assets left, you still have to go through probate. That's not good financial planning. What we generally recommend, and every client is different.

So I can only talk about generalities here because we invite every client in and meet with them and discuss and write a document that is catered to their needs. Is that, generally speaking, if you give as much of it to or put as much of it as you have into brokerage accounts and similar accounts, and have beneficiaries on every one of those accounts, then the any items you have such as that and they could be in XYZ brokerage will pass without inheritance tax or having to go 13 - > through probate.

But there will always be or most of the time there will be some products or assets that don't, and those you pay the inheritance tax on after deductions. But if you do it properly, you have minimized greatly the inheritance tax possibilities. That's why unless in Pennsylvania, you have dealt with an irrevocable trust, you are subject going to be subject to the tax instead if you make it a revocable trust, which means you still retain the ownership rights to that, then that is no different than putting it in a bank account.

14 - > What happened here or at least so far what's happened because it's now in the courts and they're spending a lot of money on lawyers, and lawyers like to make money. I don't mind making money, but at the same point, there was no need for this, because if the lawyers had been consulted at the time, she wanted to amend her will instead of saving money, they would have either issued a codicil or my preference issued a new will that would have specifically explained and set out the division of assets between her children and her grandchildren.

15 - > Instead, they saved some money and decided it would be easier to do that method. Well. They saved money in the front end, but now they're paying it in the back end. And that's going to cost them more, because to get this will and the trusts into the estate, you now have to have a judge involved.

So that that hearing and those money, those documents and those filings cost money that really the estate wouldn't have had to pay if it had been done properly. 16 - > So the lessons we learned here are simple. You should contact a lawyer and speak with him or her about your needs, and have them draft a document that is prudent for your needs. That means also taking into account any, brokerage accounts and other things.

Now, my advice is generally for people with, not a lot of assets. 17 - > And what I mean by not a lot of assets is not 10 or 15 or $20 million in assets for them. They do need an estate lawyer, who has a tax background. I don't have a tax background.

We refer them out to other professionals who do. But most of us don't have a state estates in that range of value and can handle this. 18 - > So you plan ahead. You write your will.

You write your power of attorney. You write your living well and you write your healthcare power of attorney. And you have a set of documents that clearly expresses your needs. If in fact, those change, you go back to the lawyer, and the lawyer can either write a codicil or a new will.

19 - > My preference is the new will, as I said. And then you have your document that expresses those needs. Don't do it yourself. I know it's easy, and it is a little less expensive in the front and the front end, but in the back end, you will pay for that.

And in this particular case, it may mean that the grandchildren don't get anything or that the parents have to get their inheritance and then pass it on in some way, which may well be taxable, under that state law. 20 - > That's a disaster waiting to happen. Spell out your needs. Make sure all of your documents are written properly.

And be glad that you consulted a lawyer. It doesn't cost a lot of money. My office does them all the time. We charge a flat rate for it, and we don't charge for revisions either.

Some lawyers are work in a similar fashion. 21 - > Others do charge by the hour or other rates. But the point is, it's well worth it to do that. Rather than have the kerfuffle that this family had and end up in court with filings and other expenses, and believe me, they're going to cost well, more than the lawyer would have charged, for just amending or rewriting the will.

22 - > This has been the legal tech podcast. I'm your host, Dan Siegel. I am an attorney licensed in Pennsylvania and New Jersey. This podcast is sponsored by Integrated Technology Services, LLC and by the Law Offices of Daniel J.

Segal, LLC, both located at 66 West Eagle Road in Havertown, Pennsylvania. 19083. You can reach us at 610 4463457. Or you can send us an email at Dan at t-e-c-h-l-a-w-y-e-r-g-y,com, techlawyer.

com or Dan at Daniel J. 23 - > Siegel dot com dan@danieljsiegel.com and we will be happy to answer your questions. Thanks again for listening, and have a good day.